When founder shareholders in a company sell a major slice of their shareholding, should you sell too? The answer isn’t always obvious, as there can be good reasons for a sale.
However, three of the most successful technology stocks of recent years have recently reported major share sales by founding directors. In this article I’ll ask what this means for each company, and whether you should consider following the inside money and selling up.
Too soon to sell?
This week brought news that Nick Robertson, a founder and non-executive director of online fashion retailer ASOS (LSE: ASC), has sold a 1.6% stake in the firm.
Mr Robertson’s share sale netted him a cool £46m, but he may not have sold voluntarily. It seems that Mr Robertson has recently got divorced. Divorce is a relatively common reason for major director share sales and given that he still has a 6.59% stake in ASOS, I’m not too concerned.
Growth remains strong, with earnings expected to rise by about 30% in both 2016 and 2017. Although I’ve been critical of ASOS’s low profit margins in the past, the firm does seem to be maturing well and generates a lot of free cash flow.
ASOS shares aren’t cheap on 63 times 2016 forecast earnings, but I’d probably continue to hold for the time being.
This one might be a sell
I’m less convinced about the investment case at queuing solutions firm Accesso Technology Group (LSE: ACSO), whose share price has risen by almost 700% over the last five years. In April, four of the group’s founding shareholders sold £17.4m of stock in a placing to institutional investors.
Accesso’s chairman, chief executive, finance director and a founding shareholder collectively sold almost 2m shares — equivalent to around 8.9% of the company. The placing represented roughly 45% of their collective shareholding, so it was a significant sale for them.
This suggests to me that Accesso’s best-informed insiders believe the company’s growth rate may start to slow as the business matures.
Accesso pays no dividend and trades on 34 times 2017 forecast earnings. Amazingly, the share price has risen by about 30% since the directors sold their shares. If I was a shareholder, I’d be tempted to sell at least half of my holding.
A potential income play?
Moneysupermarket.com Group (LSE: MONY) founder Simon Nixon has been scaling back his holding in the £1.8bn company for some time. Mr Nixon’s most recent sale was in March, when he sold his remaining 6.9% stake. The sale netted Mr Nixon a cool £124m, but I don’t think it’s a sell signal for the rest of us.
Moneysupermarket.com has established itself as a major consumer brand, with high profit margins and strong cash generation. The medium-term outlook seems stable and broker earnings forecasts have been rising steadily.
The latest forecasts put the stock on a 2016 forecast P/E of 21, falling to a P/E of 19 in 2017. This doesn’t seem excessive and the 3% forecast dividend yield should be amply covered by free cash flow.
I think Moneysupermarket is starting to make sense as an income stock, and would be happy to continue holding the shares.